Banking - and Life - Without an Electrified Ring Fence

06/02/2013 18:14 GMT
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Updated
07/04/2013 10:12 BST

In the week when the government introduced its Banking Reform Bill in Parliament, it is timely to reflect on the bigger picture of banking and business ethics. At the same time, it's worth considering what effects the past ten years of financial upheaval will have on future UK prosperity.

There's no doubting the anger that most people feel towards banking and bankers five years on from the demise of Lehman Brothers, the sub-prime mortgage lending crisis in the US, and banking excesses across Europe.

More recently, we've seen issues such as rigging the Libor rate and the continuing practice of paying fat bonuses to bankers whose performance clearly doesn't justify such vast rewards.

There can be no denying, for instance, that many thousands of ordinary UK citizens had their noses well and truly in the trough of 'easy credit' for much of the noughties.

Yes, the culture of casino banking gave the whole thing impetus. In reality, however, we were all complicit in this great financial charade that spawned a 'something for nothing' mindset.

The legacy has continued among consumers who still seek to perpetuate the 'climate of plenty' with fashionable products at rock bottom prices. This has been aided and abetted by hard-pressed retailers who are now in their fifth year of recessionary times, not to mention the structural changes brought about by the emergence of

e-commerce.

In the absence of consumer credit facilities formerly provided by high street banks, we've also seen the arrival of a whole new breed of predatory capitalists in the shape of pay-day loan providers and similar exploitative businesses.

The tragedy, of course, is that 'something for nothing' in the shape of loans-on-demand can rapidly change into a financial nightmare for some of the most vulnerable people in our society.

All is not lost...

The collective psychological trauma brought about by the banking crisis has forced many people to look long and hard at the credit culture. Many of the solutions are, potentially, under our noses (and have been for many a year).

The problem is, they involve what many people would see as retrograde steps that embrace the old-fashioned 'middle-class' values of deferred satisfaction, saving for a rainy day and eschewing the temptations of instant credit!

The term 'living within your means' is alien to those who've been tainted with the something-for nothing or compensation culture. To them, this is slamming the door on the exciting opportunities that purchasing power can bring - no matter how they came about their gains.

The fact that self-indulgence usually has to be paid for (by someone AND with interest), is a small matter that will be taken care of by exploiting future opportunities.

There is of course a half-way house and it's called 'saving'! For those not familiar with the concept: this is where a portion of income is set aside regularly for a specific purchase at some time in the future.

Many households do it, for example, to pay for a family holiday. Similarly, Christmas hamper companies have created a viable and sustainable business model through the simple - if seemingly quaint - notion of appealing to people's need to enjoy a debt-free Christmas!

Credit unions have enjoyed great success, especially among those with limited incomes, in lending cash to customers who have actually paid money into a credit union account.

Not only does this build up a fund (and credibility) against which they can borrow an affordable amount at sensible rates of interest. It also ensures that debts are managed, and manageable.

Taking the longer-term view...

It was the vision of sharing and managing savings that led to the formation of 'mutual' building societies in the Victorian era. Local people who trusted one another got together to attract the savings of people who would later want to borrow money to buy a house - or simply enjoy solid, if unspectacular, returns on long-term savings.

It was around the same time that the Co-Operative movement was formed in Lancashire. A group of bright local people realised that, by 'co-operating' in the wholesale purchase of food and other essentials of life, they could offer better deals for local shoppers.

Not only that, those same shoppers were seen as shareholders in the business and therefore entitled to a proportion of the Co-Op's profits at the year-end - a 'dividend' of a few pounds which has been copied in various formats by companies throughout the world ever since.

At a business level, we see UK companies like The John Lewis partnership prospering on the back of the shared-ownership principle. Every member of staff becomes a member of the Partnership and shares in the company's financial success.

On yet another level, we see the amazing success of The Prince's Trust (run by HRH Prince Charles) which provides seed-corn finance to young people who have a solid business idea.

These are all examples of the virtues of taking a conservative and careful attitude to money, especially in a social and communal context. In a global economy where massive transactions can be conducted electronically in a matter of seconds, it's easy to lose sight of the fact that most individuals have to work long hours to maintain their lifestyle and solvency.

When complex financial instruments come along and put temptation in the way of ordinary folk, we distort the fine balance between labour and reward. If we dare to look at our own very recent history, this led to distortions on such a scale that it threatened to demolish Capitalism itself.

If we can learn from this and return personal finance and business ownership to more controllable and sustainable levels - with an ethical and social conscience - we would never again have a need to 'ring fence' retail banking activities and protect our people from an institutionalised culture of financial greed.